January 1, 2011

Which of These Banks Was 2010’s Most Shameless Corporate Outlaw?

Bankers. The red carpet’s still being rolled out for them in Washington, but if there’s a stain on it they’ll pout for days. Jason Linkins documents the latest set of cheap white whines from very wealthy white men. (Discrimination lawsuits are a routine part of their legal troubles, too.) This time they’re upset because nobody from the six largest banks in America was invited to the president’s CEO Roundtable.

They’re offended because they didn’t meet with the president? From the looks of things they’re lucky not to be meeting with the warden. Their collective rap sheet includes fraud, sex discrimination, collusion to bribe public officials… even laundering drug money for Mexican drug cartels. One of them is accused of ripping off some nuns! None of this criminal behavior has stopped them from sulking over a presidential slight. Let’s review the record for these corporate malefactors, and then decide:

Which of these six banks was “America’s Most Shameless Corporate Outlaw” in 2010? (I mean, really: Nuns?)

Associated Press: “Attorneys general in Arizona and Nevada filed civil lawsuits Friday against Bank of America Corp., alleging that the lender is misleading and deceiving homeowners who have tried to modify mortgages in two of the nation’s most foreclosure-damaged states.”

Courthouse News Service: “Bank of America violated a consent judgment it signed almost 2 years ago to provide loan modifications and help relocate borrowers, the Arizona attorney general claims … Bank of America has continued to misrepresent ‘to Arizona consumers whether they were eligible for modifications of their mortgage loans, when Bank of America would make a decision on their modification requests … and whether and when Bank of America would foreclose upon their homes.'”

Consumer Affairs: “The bank is also facing at least three suits claiming that it reneged on duties it undertook by accepting $25 billion under the Troubled Asset Relief Program (TARP).”

In total, Bank of America’s last annual report lists 29 pending lawsuits against the company. Lawsuits are not proof of guilt, of course. But the bank has already paid a fine for illegally concealing $6 billion in payouts to employees, and another fine for concealing major losses at its Merrill Lynch subsidiary. (Both fines were low – not much more than a slap on the wrist – because Bank of America was on taxpayer-funded life support at the time.) BofA also confessed to committing fraud as part of a settlement this month, which the Justice Department noted was restitution “for its participation in a conspiracy to rig bids in the municipal bond derivatives market.” The Bank was also ordered to pay Lehman $590 million for illegally seizing its deposits, in violation of bankruptcy law.

From the Associated Press:

A document obtained last week by the Associated Press showed a Bank of America official acknowledging in a legal proceeding that she signed thousands of foreclosure documents a month and typically didn’t read them. The official, Renee Hertzler, said in a February deposition that she signed 7,000 to 8,000 foreclosure documents a month.

How generous has the taxpayer been to Bank of America? There was the TARP money, of course. And BofA, like other banks, has been suckling at the teat of Federal Reserve’s discount money window throughout the crisis. And, as Zach Carter noted, the bank was also one of two institutions that were the main beneficiaries of a special Fed program called the Primary Reserve Credit Facility. There were those cushy settlements with the SEC.

BofA stock was trading at $53 at the end of 2006. As of this writing the stock is trading for $13.30. But its executives have been wasting corporate money and resources buying up 419 web URLs with insulting phrases and the names of their senior executives — most of whom nobody’s ever heard of – to protect their personal reputations. No company’s ever done that before. Bob Scully “blows” (bobscullyblows.com) and Bill Boardman “sucks” (billboardmansucks.com)? Who knew?

Last year two senior executives received $9.9 million and two others received $6 million in total compensation. The guy who robbed a Bank of America branch in West Palm Beach is going to prison. The bank’s senior executives are hurt that they didn’t get invited to the Rose Garden for tea.

Rap Sheet: BofA has probably committed more foreclosure offenses than any other single institution. It deceived stockholders, and the public, about the $6 million in bonuses it paid out (during the rescue process), and was equally deceptive about Merrill Lynch’s financial status. It has also been punished for rigging municipal bond derivative bids.

“At JPMorgan Chase & Company, they were derided as ‘Burger King kids’ — walk-in hires who were so inexperienced they barely knew what a mortgage was… revelations that mortgage servicers failed to accurately document the seizure and sale of tens of thousands of homes have caused a public uproar …”

Failure to accurately document home foreclosures is illegal. It’s lousy management, too. Dimon oversaw a sloppy operation that’s going to cost his shareholders a lot of money: “JPMorgan set aside $2.3 billion of reserves to cover mortgage repurchases or litigation expenses, including some for ‘mortgage-related matters,’ the lender said.”

A whistleblower complaint alleges that the bank “sold to third party debt buyers hundreds of millions of dollars worth of credit card accounts… when in fact Chase Bank executives knew that many of those accounts had incorrect and overstated balances.” According to the complaint, “Chase Bank executives routinely destroyed information and communications from consumers rather than incorporate that information into the consumer’s credit card file … and mass-executed thousands of affidavits in support of Chase Banks collection efforts … (but) did not have personal knowledge of the facts set forth in the affidavits.” It also claims that “when senior Chase Bank executives were made aware of these systemic problems, senior Chase Bank executives — rather than remedy the problems — immediately fired the whistleblower and attempted to cover up these problems.”

There are also multiple lawsuits against Chase for allegedly manipulating the price of silver, and there is at least one report that the bank is being probed by several Federal agencies (including the Justice Department) over its trading activities in precious metals.

JPMorgan Chase “agreed to pay $25 million to settle allegations it sold unregistered securities, many of which defaulted, to the state of Florida,” as the Orlando Sentinel reported. That’s a crime. Chase was also one of several banks that paid to settle charges that it illegally propped up a failed mortgage lender. (These settlements have typically allowed the banks to “admit no wrongdoing” — a practice which should be stopped. Crimes are crimes.)

JPMorgan Chase’s behavior in Jefferson County, Alabama was pure Huey Long material. The Kingfish would’ve admired the way the bank spread more than $8 million around the county through local intermediaries so it could secure highly lucrative deals on municipal derivatives. As Bloomberg News put it, ” JPMorgan, the second-largest U.S. bank by assets, used fees on the unregulated derivative contracts — and a trip to a New York spa for one elected official — to curry political favor, a decade after the SEC adopted rules to drive out pay-to-play from the $2.8 trillion municipal bond market.”

The bank conducted this criminal behavior under Dimon’s watch. And while it “neither admitted nor denied wrongdoing,” as usual, it had to pay a three-quarters-of-a-billion dollar settlement to wrangle its way out of this snakepit of illegality.

Shameless quotes: “Judy Dimon says the crisis took a toll on him. He used to stand up to bullies who threatened his smaller twin; now he felt as if he, and bankers in general, were being bullied.” (from a New York Times profile of Dimon)

3. Citigroup

Citi’s being sued for gender discrimination by its own employees. Citi settled a class action lawsuit after illegally raising rates for credit card customers. The bank’s being sued by an independent trustee for allegedly “aiding and abetting” a Ponzi schemer.

Citi executives were given slap-on-the-wrist fines for lying to investors about $40 billion in subprime exposures, which is a criminal act. It should also be remembered that Citigroup paid $2.65 billion in 2004 to settle class action lawsuits over its alleged illegal actions in propping up WorldCom stocks in return for enormous fees.

As Citi’s annual report notes, “Citigroup and Related Parties have been named as defendants in numerous legal actions and other proceedings asserting claims for damages and related relief for losses arising from the global financial credit and subprime-mortgage crisis that began in 2007.”

Citi is still being investigated by Italian courts for possible criminal behavior in the Parmalat case, and it’s being sued by a Norwegian bank for misrepresenting its financial condition and failing to disclose material information. It’s being sued by investors for misrepresenting its underwriting of mortgage backed securities.

Shameless quotes: “Almost all of us… missed the powerful combination of forces at work and the serious possibility of a massive crisis.” (Robert Rubin) “On November 3, 2007, I sent an email to Mr. Robert Rubin and three other members of Corporate Management. In this email I outlined the business practices that I had witnessed… I specifically warned about the extreme risks that existed within the Consumer Lending Group.” (Former Citi exec Richard Bowen)

4. Wells Fargo

They illegally laundered drug money for the Mexican cartels — and nobody went to jail.

Here’s a suggestion: Read stories like “War Torn Mexico: A Population in Terror,” which begins: “Massacres, beheadings, YouTube videos featuring cartel torture sessions and even car bombs are becoming commonplace in Juarez.” Study the statistics on the violent murders – which include Federal agents, children, and “penniless immigrants” — and then remind yourself: These are Wells Fargo’s business partners.

Shameless quotes:”We’re more of a Main Street bank than a Wall Street bank.” “Of all the decisions I’ve had to make, few have been as difficult as cutting the dividend.” (Wells Fargo CEO John Stumpf)

5. Goldman Sachs

The SEC charged Goldman with fraud, and they settled the suit by admitting their marketing materials contained lies — which they called “mistakes.” They were fined by Great Britain for illegally concealing US fraud investigations. Goldman has its own gender discrimination lawsuit, too, and theirs comes complete with strippers and racist emails.

Goldman’s being sued for deceiving its clients over an offering its own employee privately (and thanks to Sen. Levin, famously) bragged was “a shitty deal.” Goldman separately paid $60 million in Massachusetts to settle charges of predatory loan practices.

After mismanagement drove Goldman into impending doom, the firm was saved by TARP funds and Federal Reserve’s Emergency Liquidity Programs. Total taxpayer aid to Goldman exceeded three-quarters of a trillion dollars. Goldman also received $13 billion in backdoor payouts through the AIG liquidation (under Tim Geithner’s supervision).

Earlier this year the Wall Street Journal reported that “U.S. prosecutors are investigating whether Morgan Stanley misled investors about mortgage-derivatives deals it helped design and sometimes bet against.” The firm’s also being sued by US Bank for fraudulently misleading it and other investors over a structured residential investment called “Tourmaline.” A group of investors in Singapore is suing the firm for designing CDOs to fail and then selling them as “conservative investments.”

The Financial Industry Regulatory Authority fined Morgan Stanley this year for failing to disclose material conflicts of interest to investors. The same agency hit the firm with a $12.5 million fine in 2007 for illegally concealing emails during customer arbitration hearings. In a particularly sleazy move, Morgan Stanley claimed that the emails had been lost on 9/11, when they were all safely stored in backup copies elsewhere.

MS was also sued by the EEOC for gender discrimination.

The firm was able to beat back an investors’ lawsuit over bloated executive pay — it set aside 62% of net revenue for employee compensation — so its executives get to keep fat bonuses for driving the company into the ground. Greed and stupidity aren’t illegal, after all.

On the other hand, their portfolio of lawsuits including one that says they defrauded nuns in Europe.

Rap Sheet: Despite numerous violations and charges, Morgan Stanley is a relatively minor player compared to its bigger colleagues. On the other hand, it illegally concealed evidence from arbitrators by using the World Trade Center attack as an excuse, and six of its own employees died in that attack. That’s simply vile. On top of that, they’re being sued by nuns.

Shameless Quotes: “When we think back on 2001, we are filled with deep sorrow and outrage over the events of September 11. Who among us will ever forget the shock and horror of that day?” (Morgan Stanley Annual Report, 2001) “When you come that close to really going out of business, call it near death, death experience, the end of the line, whatever you want to call it, your only focus is to make sure your company survives.” (former CEO John Mack)

The American people rescued these six banks. (Dimon says his bank didn’t need rescuing, but how would it have fared in a collapsed economy? And the government’s willingness to go easy in its illegalities was pretty helpful, too.) They’ve all violated the law, and they’re all suspected of even more possible illegalities. And yet they’re all pouting because they weren’t invited to the White House along with the other CEOs.

Which is our most shameless corporate lawbreaker? In any normal period of history they’d all be considered corrupt institutions, and their leaders would be ashamed to show their faces among respectable people. But these aren’t normal times, are they?

Frankly I’m stumped. They all deserve the title as far as I’m concerned. Why don’t we put it to a vote?

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Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.